Indonesia's East Java seeks creative financing to boost economic growth

Creative financing can be a vital tool for regional governments in Indonesia to sustain economic growth, especially as investment demands increase, according to Ibrahim, Head of the East Java Representative Office of Bank Indonesia (BI).

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In the midst of increasing investment needs, the capacity for regional development financing faces challenges in line with the dynamics of fiscal space and transfers to regions, thus further emphasizing the importance of diversifying funding sources outside the APBD.

He explained that these schemes offer a way to diversify funding sources beyond the regional budget (APBD). This diversification is crucial because the capacity for regional development financing faces challenges due to fiscal dynamics and transfers to regions. Ibrahim noted that East Java's economy remains resilient, growing 5.65 percent year-on-year, driven by household consumption, investment, and government spending.

Investment is particularly important, contributing 29.68 percent to East Java's regional gross domestic product (PDRB), making it a strategic engine for economic growth. To bolster this, Ibrahim advocates for various creative financing options, including regional loans, public-private partnerships (KPBU), regional bonds and sukuk, optimalization of regional assets, and blended finance schemes.

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The momentum of growth needs to be maintained, one of which is through strengthening investment as one of the engines of economic growth because it has a strategic role with a contribution of up to 29.68 percent to the PDRB of Java.

Meanwhile, Agus Fatoni, Director General of Regional Finance at the Ministry of Home Affairs, cautioned that the utilization of creative financing must adhere to principles of prudence, fiscal sustainability, and good governance. He stressed that expanding financing sources must be accompanied by strengthening regional fiscal capacity and governance, considering the region's financial capabilities, regulatory readiness, and institutional capacity.

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The expansion of development financing sources needs to be accompanied by strengthening the fiscal capacity and governance of regional governments, considering the financial capabilities of the regions, regulatory readiness, and institutions.